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This case involves a putative class action for Covid-19 business interruption loss coverage. Plaintiff sued for breach of contract after coverage was denied, and later moved to amend the complaint to bring a cause of action for breach of the covenant of good faith and fair dealing. New Jersey District Judge Kugler denied the motion, as the insurer’s position was fairly debatable. Thus, amendment would be futile since the insured could not state a bad faith claim, even if allowed to amend.

To quote Judge Kugler:

Here, Plaintiff sought to add a bad faith claim. To do so, Plaintiff must plead sufficient factual matter to state that: “(1) the insurer lacked a ‘fairly debatable’ reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.” Puzzo v. Metro. Life Ins. Co., No. 15-3190, 2016 WL 1224029, at *6 (D.N.J. Mar. 29, 2016) [summarized here]. “[A] claimant who could not have established as a matter of law a right to summary judgment on the substantive [coverage] claim” fails to meet that “fairly debatable” standard, and “would not be entitled to assert” a bad faith claim. Pickett v. Lloyd’s, 131 N.J. 457, 473 (1993).

Plaintiff fails to state claim for bad faith upon which relief could be granted. The policy covered physical loss and property damage. Plaintiff seeks coverage under this property insurance policy for losses resulting from COVID-19 stay-at-home orders. For insurance coverage purposes, COVID-19 stay-at-home orders do not cause “direct physical loss of or damage to property.” See, e.g., 7th Inning Stretch LLC v. Arch Ins. Co., No. 20-8161, 2021 WL 1153147, at *2 (D.N.J. Mar. 26, 2021). This is a “fairly debatable” reason for not paying the claim, so Plaintiff cannot state a bad faith claim.

The court also observed the principle that, “However hasty [the insurer’s] denial of coverage was does not change the fact that they had a fairly debatable reason to deny, precluding Plaintiff from stating a plausible claim for bad faith.”

Before deciding the motion to amend, the court refused to grant a stay pending the outcome of a decision in the Third Circuit in another matter involving Covid-19 business interruption loss coverage under New Jersey law.

Date of Decision: February 17, 2022

Cammie’s Spectacular salon, individually, & on behalf of all others similarly situated v. Mid-Century Insurance Company, U.S. District Court District of New Jersey No. CV2012324RBKMJS, 2022 WL 488945 (D.N.J. Feb. 17, 2022) (Kugler, J.)